Unemployment Extension: The GOP's Unprecedented Deficit Demands

Republicans say the federal deficit can't bear the $33 billion cost of reauthorizing unemployment benefits, so the spending should be offset with cuts from another part of the budget. Democrats are dead-set against doing so and have rejected several GOP proposals to pay for the benefits by taking a chunk of money out of the 2009 stimulus bill.

To the 2.5 million long-term unemployed who have prematurely stopped receiving checks, the dithering deficit debate in Washington might seem a tad philosophical. As Senate Majority Leader Harry Reid (D-Nev.) put it on Monday, "They're trying to understand why at this pressing moment -- when jobs are harder to come by than at any other time in recent memory -- Congress can't get its act together to extend emergency insurance, just as we've always done with bipartisan backing."

Here's what's going on: Since the 1950s, to fight recessions Congress has routinely put in place federally-funded benefits to help people who can't find work before exhausting 26 weeks of state benefits. Democrats have said during the current debate that because Congress has never offset the cost of the benefits, doing so now would not only nullify the stimulative effect of giving money to people who immediately spend it, it would also fundamentally undermine unemployment insurance in the future. "If you say that you can't feed people because you don't have the money right now, that is a real new precedent," Rep. Jim McDermott (D-Wash.) told HuffPost.

The claim has gone largely unchallenged, but Sen. Jim Bunning, the Kentucky Republican who launched the GOP's deficit crusade back in February, says Democrats are wrong about offsetting benefits. "Historically that is untrue," Bunning told HuffPost. "Just do your homework. Go back and check historically what they've been doing."

HuffPost did its homework, and Bunning's got a point: Congress has, in fact, offset the cost of unemployment benefits -- but Congress has never substantially cut spending elsewhere in the budget to fully pay for them as Republicans now want to do.

For instance: In 1991, the elder President Bush signed a bill for 13 additional weeks of jobless benefits at a cost of $5.5 billion, fully offset with tax hikes. The New York Times reported at the time that the extension would be "financed through changes in the tax law that will require higher corporate estimated tax payments, increased taxes on lump-sum pension distributions and a one-year elimination of the personal exemption for high-income taxpayers."

(Bunning, then a member of the House, voted for the deficit-neutral version after voting against the unpaid-for version.)

And to offset the cost of additional weeks of benefits added in November 2009, Congress increased the federal unemployment payroll tax (known as the FUTA surtax, per the Federal Unemployment Tax Act), which raised $2.5 billion. "Now, it's important to note that the bill I signed will not add to our deficit," said President Obama at the time, in remarks that a Senate Republican aide circulated to reporters on Monday. "It is fully paid for, and so it is fiscally responsible."

However, subsequent reauthorizations in December, March, and April were designated "emergency spending" and not subject to pay-as-you-go rules.

Unemployment insurance, like its name suggests, is insurance: benefits are financed through federal and state payroll taxes (FUTA and SUTA). During recessions, Congress gives the unemployed additional weeks of benefits and the federal government pays half the cost, and states can borrow from the federal Unemployment Trust Fund if they run out of money. When the economy improves, states are supposed to replenish their own trust funds and pay back the federal government via unemployment payroll taxes.

"Really what is going on here is that there are two ways to understand 'paid for.' Unemployment Insurance in the real world is 'paid for' by federal and state payroll taxes over a business cycle," wrote Rick McHugh, a staff attorney with the National Employment Law Project. "In the federal budget world, this does not count as 'paid for,' even if in the real world those benefits are going to actually get paid for by UI payroll taxes."

According to the House Historian, Congress has used FUTA surtaxes to offset the cost of benefits during recessions in the 1990s, '80s, and '60s, but no offsets whatsoever during the recessions of the '50s, '70s, or in 2003.

"UI extensions have never been paid for with offsetting domestic spending cuts, even if there have been times when it was 'paid for' in the budgetary sense by some sort of FUTA surtax extension or other tax code changes," wrote McHugh.

Republicans today seem unlikely to favor raising taxes to pay for unemployment benefits, as demonstrated by the party's refusal to offset the deficit impact of reauthorizing the soon-to-expire tax cuts for the wealthy, which the administration estimates would cost $678 billion over ten years. This, plus the fact that deficit hawks outside of Congress don't consider stiffing the jobless a smart way to reduce the deficit, and Republican side arguments that extended benefits make people lazy, have made it easy for Democrats to point to an ulterior motive.

"They look at a crisis for families' budgets and see an opportunity for their political fortunes," said Reid. "They think that when unemployment goes up, so do their poll numbers."

Congress has never allowed extended unemployment benefits to lapse at a time when the national unemployment rate is above 7.2 percent.

The Senate will vote again on jobless aid Tuesday and Democrats, who will be joined by Carte Goodwin, the man appointed to fill in for the late Sen. Robert Byrd (D-W.Va.), expect to have the 60 votes they need to break the Republicans' filibuster. The bill will apply retroactively, so the unemployed will be paid the amount they missed during the lapse. The bill will do nothing for people who exhausted all 99 weeks available in some states before the lapse took effect.